Editorial Policy

Getting Off the Balance Transfer Merry-Go-Round

Eva Norlyk Smith Ph.D.

May 13, 2013

QHi Eva,

I am trying to get off the balance transfer merry-go-round. I have $12,000 in card debt. The highest APR is 23.99 percent with Sears, but that balance is below $1,000. The rest of the debt is on low-interest cards at about 11.99 percent and under. Once my CD matures in December, I can pay all my debt, but I have done this many, many times before and just wind up using the cards again. Only this time I am not working anymore. I live on Social Security income.

Keeping my eight cards keeps me kind of “in line,” believe it or not. I would be spending more if my cards had no balances. I'm the type who likes to use plastic. I live in denial and would rather foolishly pay interest each month rather than pay them all off — been there done that. There is a ton of info out there to tell you what to do, but none truly addresses the issue of the denial part. Any suggestions? — Lola

ADear Lola,

Denial works OK when you have enough income to pay your credit card balances down once they get too high. But on a Social Security income, you won't have that luxury. If that credit card debt gets ahead of you, you could easily find yourself buried.Ask Eva

To see how your current credit management strategy will pan out, let's say you pay off your credit card debt when your CD matures. Then — repeating your current financial habits — you rack up another $12,000 in debt. Now the CD is gone, and you're stuck having to pay down the $12,000 credit card debt on your Social Security income.

As your credit card balances head up, your credit score heads south, and you are likely to find it harder to qualify for decent balance transfer offers. So you could end up paying interest rates at the higher end of the spectrum. At 22.9 percent APR, interest charges alone will eat up $230 of your Social Security income every month.

Toss in a couple unexpected expenses such as medical emergencies, a family crisis or car repairs, and you'll find yourself trapped by debt obligations, with no way out. Once you fall short of funds and miss payments, the debt collection machine will descend upon you, and trust me, with debt collectors after you, denial is not an option.

Maybe all that sounds gloomy. But, as you enter your golden years, planning for the unexpected should be the rule rather than the exception. So I'll share a few tips to help you get off this not-so-merry-go-round of debt.

1. Take time for self-reflection. When you get the impulse to spend more than you have, pause to look at the underlying emotional drivers. Is your spending a reaction to emotions that are hard to deal with? Or to boredom? Does it come from a need to treat yourself to cheer up? From sheer habit? Or all of the above? Understanding the impulses that drive your spending is an important first step in dealing with it.

2. Make it fun. There are a lot of smart people out there who have come up with all sorts of fun resources for tackling the challenges associated with changing bad habits — including poor money management habits.

Check out the resources on HabitChanger.com, a site that uses cognitive behavior therapy to give you a new perspective by exposing the habits you've learned through your family or on your own. For about $20 (far below what you pay in credit card interest each month), you can join one of its 42-day programs. Another good habit-changing resource is First30days.com, which has programs targeting debt reduction.

3. Create an emergency fund. Contrary to what you might think, your best bet is not to simply wipe out the debt once your CD matures. If that is all the savings you have (and it sounds like it), you'll need to keep that money in an emergency savings account for unexpected expenses. Having a little extra padding is essential to prevent yourself from reaching for your cards in an emergency.

4. Get a coach. Getting a coach who is on your side can make all the difference between succeeding or failing. Look for a good nonprofit credit counseling organization, and see which free services it offers. It's always better to get assistance before you actually need it, and credit counselors offer financial education and advice in addition to actual credit counseling. Experienced credit counselors who have worked with a lot of people with similar issues can be surprisingly resourceful in helping you free up money for debt repayment.

Paying down debt can be a slog — but it can also be an adventure in self-discovery, learning and growth. So stick with it, and a year from now, you will be happy you did.

Got a question for Eva? Send her an email.